THE ROLE OF FINANCIAL INSTITUTIONS IN ECONOMIC GROWTH AND DEVELOPMENT

Abstract

This paper explores the multifaceted role of financial institutions in driving economic growth and development. It examines the theoretical foundations of financial intermediation, market efficiency, and risk management, highlighting how institutions mobilize savings, allocate capital, facilitate payments, and reduce information asymmetry. The analysis also discusses how financial institutions contribute to entrepreneurship, innovation, and technological advancement, drawing on real-world examples and data from organizations such as the IMF, World Bank, and Asian Development Bank. Finally, the paper addresses contemporary challenges, such as digital transformation, cybersecurity, and regulatory complexities and assesses future prospects for building a resilient, inclusive financial system. The findings underscore the indispensable role of robust, adaptive financial institutions in fostering sustainable and inclusive economic progress.